COMPENSATION MANAGEMENT
Meaning and Definition of Compensation Management
maintaining and sustaining a pay structure ; but in present era , the term compensation management is composed Earlier , compensation management or compensation administration was limited up to designing . of a number of activities pertaining to job evaluation , market rate analysis , job analysis , pay structure design and maintenance , etc. In a nutshell , compensation management refers to the efforts of the organisation to maintain a competitive compensation structure , keeping in mind the conditions of local labour market with respect to present and future financial resources of an organisation .
According to I. Kessler , " Compensation management refers to payment systems which determine employee wages or salary , direct and indirect rewards " .
According to Tapomoy Deb , " Compensation management is a system of compensating individuals for the work they perform in such a way that the organisation is able to attract , retain , and motivate them to perform well keeping in view organisational and market factors " .
Objectives of Compensation Management
Compensation management strives to achieve the following objectives :
1) To Attract and Retain Employees : The basic purpose of compensation management is to attract and retain the talented employees . In order to attract the workforce from the competitor's organisations , sometimes premium wages are required to be offered . Finally , a payment system should be as per the demand and supply of labour in the market .
2 ) To Motivate Employees : Compensation management motivates employees to work hard in order to improve their productivity as well as that of the organisation .
3 ) To Optimise Cost : Compensation management should establish a suitable relationship between performance and compensation because it is not necessary that , if employees are given high wages they will perform better without any valid linkage . To Achieve Consistency : Compensation management aims at maintaining both internal and external equity in compensating employees . Internal equity can be achieved by making payment on the basis of job specification and employees ' performance on the job whereas external uniformity can be achieved by making payment for a job similar to all organisations . Compensation management also tries to reduce the disparity pertaining to compensation of a specific work as related to other organisations .
Process of Compensation Management
Compensation management process has certain steps to be followed . These steps are shown in figure 4.1 :
1 ) Job Analysis : Job analysis is the first step taken by the management in compensation management process . It includes identifying the nature of job , duties and responsibilities performed by employees , their accountability towards the organisation , their performance , etc. In simple terms , characteristics of the job form the basis for compensation management process .
2)Job Evaluation : The next step in the process of compensation management is evaluation of different jobs in the organisation . It is the job evaluation which determines the worth of the job . The nature of work , and skills and duties required for a particular job forms the basis for job evaluation . In the job evaluation method , worth of each job is assessed using various methods such as ranking , grading , paired comparison , factor comparison , etc. These evaluation methods are carried - out without any biasness in order to identify the salary structure of various jobs .
3 ) Developing the Pay Structure : Pay structure depicts what an organisation pays to each employee Organisation can opt for narrow graded and broad graded pay structure on the basis of significance and difficulty level of the job .
4 ) Wages and Salary Survey : Before setting up of a pay scale , it is compulsory for the organisations to consider external equity . For this , organisations use wage and salary survey method . With the help of wage and salary survey method , organisations try to gather information from the labour market about the salary given to the employees of same level or performing same job in similar of industry . Besides this , information related to current wage rate , cost of living , rates during inflation and deflation periods , etc. , can also be gathered through labour market . There are two types of survey methods , either the organisation can go to the labour market and conduct the survey or it can purchase the surveys conducted by professional organisations .
5 ) Job Pricing : Determining pay rates for different jobs of the organisation is known as job pricing . Job evaluation process and wage and salary survey process forms the basis for determining the job prices . Before deciding the salary of the employees , the internal worth and external worth of the job should be compared . While finalising the job prices , organisation should ensure two things , viz .
1 ) Appropriate salary is given to the employees according to the value of the job , and
ii ) The efficient performers of the organisation should be rewarded for their excellent performance .
6 ) Compensation Revision and Control : Since compensation of employees is an expense for the organisations and has a great impact on the organisational goals and objectives , thus , a proper and effective method should be employed such as budgeting , performance appraisal , compa - ratio method , etc. to determine the cost incurred on the human resource of the organisation and the effectiveness of compensation management . Among all these methods , budgeting is the most effective method which helps in setting standards to evaluate the expenses incurred in the form of compensation . This method facilitates in regulating the financial outflow and aids in HR cost controlling and monitoring .
Importance of Compensation Management
Importance of compensation management is as follows :
1 ) Compensation management is crucial to align employees ' efforts with the aims and objectives of the organisation .
2 ) It helps in creating and developing a competent and motivated workforce in order to achieve the set goals and targets of the organisation .
3 ) It helps to build positive image of the organisation in the society .
4 ) It eradicates social problems like bribery and theft . This is because if the employees get sufficient salary to sustain their life , they are less likely to engage such criminal activities .
5 ) It increases job contentment in employees and also enhances their commitment level and loyalty .
6 ) It helps in improving the organisational productivity .
7 ) It aids the organisation to comply with the existing rules and regulations set by the government regarding compensation .
